> For the complete documentation index, see [llms.txt](https://docs.smardex.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.smardex.io/ultimate-synthetic-delta-neutral/the-usdn-protocol/fees/liquidation-fee.md).

# Liquidation Fee

The liquidation fee, also known as the "liquidation penalty," is applied to protect the protocol. When a user opens a [long position](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#long-position), a liquidation price is determined, and a 2% liquidation penalty is added to this price. This means the user will be liquidated at a slightly higher price than expected.

The penalty serves two main purposes:

1. To safeguard the protocol against risks if liquidation is delayed, potentially causing bad debt.
2. To incentivize liquidators, [dip accumulator](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#dip-accumulator) users, and [USDN token](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#the-usdn-token) holders.

This penalty is directly included in the calculation, so the user always sees the final liquidation price, including the penalty.

## Penalty Distribution

#### If the Dip Accumulator Is Not Triggered:

* **Liquidator costs and bonus:** A portion of the penalties covers the liquidator's costs, as liquidating a position involves expenses. Additionally, a small bonus is provided to incentivize users to liquidate positions promptly, ensuring dead positions do not remain in the protocol. ([Learn more about liquidations here](/ultimate-synthetic-delta-neutral/the-usdn-protocol/long-side/liquidations-and-minimum-position.md))
* **Vault allocation:** The remaining penalties are allocated to the [vault](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#vault), reinforcing the protocol and benefiting USDN token holders.

####  **If the Dip Accumulator Is Triggered:** ([Click Here for More Info](/ultimate-synthetic-delta-neutral/the-usdn-protocol/long-side/dip-accumulator.md))

* **Dip accumulator rewards:** 60% of the penalties are distributed as rewards to users who provided liquidity to the dip accumulator, proportional to their contributions.
* **Liquidator costs and bonus:** A portion of the penalties is used to cover liquidator costs and provide a bonus, as described above.
* **Vault allocation:** The remainder is allocated to the vault.


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